High inflation and an era of low rates threw cold water on the usual relationship between stocks and bonds.
Fixed income typically serves as an offset to declining equity prices, but both asset classes fell in the wake of the pandemic as the Federal Reserve raised rates to battle inflation.
The relationship, however, has been reverting to its old ways, according to Emily Roland and Matt Miskin, co-chief investment strategists at John Hancock Investment Management.
The duo charted the rolling 60-day correlation between the S&P 500 index and the U.S. Aggregate bond index, finding “another correlation wave” that started in 2024 as inflation fears reared back up, which eventually gave way to another drop to a “zero” correlation this summer.
While they expect a bumpy path yet ahead, the team noted the S&P 500’s roughly 19.20% gain this year and the U.S. Aggregate’s near 3.6% advance as positive developments.
